From Redfin, “Great 2 level condo located in Woodbury!! Very open and spacious with large rooms throughout. Family kitchen, wood and stone tile floors, living room with fireplace, seperate laundry, and private courtyard entry are just some of the features of this home. Close to everything Irvine has to offer!!”

Two exclamation points? I thought three was the standard?

seperate?

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{adsense-ir}

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Sales History

Date……………….Price

05/29/2007 $605,032

09/08/2005 $679,000

I assume this is an REO. Interesting that it took them 6 months to list it. If they get their asking price, assuming they originally loaned $679,000 and they pay a 6% commission, the total loss would be $185,594. Notice this asking price is 22.6% off the peak sales price. Yikes!

There is a reason for the credit crunch: lenders are losing money. Lenders don’t like to loan money when people do not pay them back. The more they get burned, the more conservative they become. As they get more conservative, fewer people qualify for loans and loan amounts decline. This in turn puts more people underwater makes refinancing that much more difficult and causes even more bank losses. It is a classic downward spiral. This is why credit will not loosen any time soon. There are people out there who believe the credit crunch is a temporary thing that will pass soon. It isn’t, and it won’t. In fact, it is likely to spread to other forms of borrowing as the situation continues to deteriorate.

So what does all this mean, and how do you prepare for it? Basically, it means borrowed money will not be widely available, and what is made available will be more expensive. If you live a life without credit dependency, the credit crunch will not impact you much. If someone takes away something you do not use, it doesn’t harm you much. However, if you are like most Californians and you are addicted to credit, you are in for some struggles.

The best thing you can do to prepare for the upcoming deepening credit squeeze is to stop using credit. Pay off what you have and stop using it. If you don’t, you might find your interest expense increasing dramatically, and you will find yourself subject to the whims of your creditors. There is no freedom when you have debt. The next thing you can do is to start saving money. Things could get very bad, particularly locally. We have already seen waves of layoffs in the real estate industrial complex, but this could easily trigger a wider slowdown in the economy and put people in related fields out of work. It could be you. Save now, and you will be prepared to weather the storm.

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237 thoughts on “Are You Prepared?”

Under $300/sqft? I thought this was Irvine. Not that I would consider paying over $500k for a condo…

If the taxpayers weren’t funding the whole housing detonation I would love watching the lenders take it in the a. I am a bit curious to see where all of the money will come from, because unless there is a significant tax hike I don’t think the govt has the budget for it, but that’s just a guess. I would think that raising taxes would be bigger political suicide than telling the banks that they are on their own.

I just can’t see over $500K for a TWO BEDROOM dwelling place. I know…I’m cheap and I rent…and I have zero debt and some money saved up. Maybe when the market bottoms out a place like this will be in the high $300’s. It would still be overpriced, but not over $500K. That just makes no sense at all.

What about when the interest on a 80% LTV loan equals rent payments? That is a scenario where the money you would be using for rent covers interest while additional payment pays down debt and builds equity even if you want to assume 0% appreciation.

$2300 rent = $520 K house (approximately)

$2500 rent = $570 K house (approximately)

These are crude approximations with the assumption that tax benefits cancel out the additional cost. You could refine them but they would not change that much.

I’m sure that someone out there will want to make the ‘sacred land’ argument to fluff the price up. Either way, this is pretty much a starter home and without creative financing, you’ll have a tough time finding a first time buyer who can pony-up a 20% (60,000$ OUCH!) down payment for a 300K apartment.

Drop the price down to 150K and then 20% (30,000$) down payment is much more workable. Financing the remaining 120,000$ at fixed 30 year 7% gives you a monthly payment of about 800.00 a month. Then when you add in the junk Association dues, our monthly expenses come to between 900.00 and 1000.00 per month which would be 25% the income of a single person earning around 60K per year or two people each earning 30K.

I believe a recent bill to cap credit card interest at 30% was recently defeated. Watch for massive defaults when people realize they are paying 40-50% rates on their credit card debts with no hope of ever paying it off. The problem with credit cards is that while you may purchase when the rate is 12% that can be raised anytime the balance is outstanding. Attempts to stop the companies from raising rates on current debt arbitrarily aren’t likely likely to succeed given the power of the lobbyists for the credit industry. So if rates begin rising people may find a manageable rate triple even though they’ve never paid late on a particular card because their credit score drops or they miss a payment somewhere else.

I agree that you should not use credit unless it’s an emergency or you get a zero if you pay it off in a set amount of time.

I lived off credit during my undergraduate years which was long enough for me to learn how much I absolutely detest credit card companies, their games and GOTCHA!s

I could not agree with you more in regard to the raising of the rates on monies borrowed at a lower rate. It’s a total crock.

I’ll never pay a dime of interest to a credit card company ever again. If I can’t afford something, I simply will not buy it.

Nevertheless, I do enjoy getting a yearsworth of 0% interest. I’ll happily borrow their money for free and pay it off each month just so that my credit score will show that I pay my bills. Then move on to the next 0% when the first expires.

There is no reason to pay interest on credit cards with all of the competition out there.

I was fortunate to have parents who taught me to avoid credit card debt completely. I haven’t paid a single interest charge in my entire life. This is one of those gems you pass on to your kids and pray they listen and obey. Being a slave to your credit card company is the 21st century form of indentured servitude.

Sorry – interest charge on a credit card. I’ve gone into debt for only the big three – home, vehicle, & education. And then only wisely (e.g used cars). I also recently finished an MBA at my employers expense. No sense letting that generous tuition reimbursement program go to waste!

Trying to calculate the highest possible break even rental point is a knife catchers game. People invented all kinds of fuzzy math to justify pricing during the bubble. Add in some projections on rental increases or appreciation, and there is no purchase price that cannot be rationalized.

It is a good exercise to know where breakeven is to make sure you don’t overpay, but to rush out and buy the first property that falls to breakeven because you are afraid the market is going to rebound and price you out forever is still a symptom of kool aid intoxication. When the market bottoms, it is going to spend several years near or below the rental breakeven point to absorb all the inventory. There will be some great deals on REOs from 2009-2012. Housing markets do not form “V” bottoms like stocks sometimes do. There will be absolutely no urgency to buy until inventories shrink and REOs stop being dumped on the market. We are nowhere near the peak of foreclosures, and we have hardly even begun to dispose of the REOs.

I would note that investors will not be running out to buy at 150 GRMs. To get a cashflow that provides a return that justifies the risk of real estate, GRMs will need to drop to between 100-120. This is the likely fate of undesirable properties. Desirable SFDs probably will find absorption closer to 160.

If you want to see what GRMs were during 1997, look at the ad in this post:

The SFD in the post would rent for between $2500-$2700 in today’s market. In 1997 the rent would have been $2000-$2200 (20% lower). GRMs for SFDs would have been somewhere between 135-150. Anecdotally, people who bought in 1997 will tell you it was cheaper to own than to rent.

Tell me what has changed that would make the bottom higher this time? Do you think interest rates are permanently lower and 25% below historic norms? Do you think exotic mortgage products are here to stay?

I believe history will repeat itself. In fact, since the foreclosures are going to shatter all old records, I think we will see significant downside overshoot while the market tries to absorb all the inventory. In the end, it still comes down to supply and demand. Demand will pick up as prices drop, but if the supply is overwhelming, prices will continue to drop.

I don’t see this property dropping to $175K any time soon. The incomes here are just too high. There will be someone ready, willing and able to bid more than that for this property even at the lowest point in the cycle.

I don’t know if this is a sense of entitlement. We get many people here who look at our market prices through the prism of their own market experience. In fact, I think many people come here from outside the area to marvel at the prices people were willing to pay for tiny stucco boxes during the mania.

AZ, again, your observations from afar are quite useless. This unit will never ever fall to $150K or even $200K for that matter… We are talking about the award-winning masterplanned community of Woodbury, although I fail to see what is particular special about it and yes toney, it is flat. The Irvine Company does’t want a household making $60K to be able to buy into this place. The Irvine Company wants them renting an IAC apartments… Better yet, a household making $60K should be picking up a place in Santa Ana. You probably have no idea what that means though because YOU DON’T LIVE HERE.

I agree. I have no doubt that a lot of people are going to jump in before this price hits rock bottom.

When you are so accustomed to the inflated prices a 200K price decline is pretty motivating.

I am not trying to convey entitlement; just sensibility.

For example, our household income is significantly higher than the Irvine 84K. We live in AZ and earn more than half the households in Irvine.

We rent a decent (not fancy not ghetto) apartment (smaller than this featured condo) in Scottsdale for around 800.00 a month (which rented for 600.00 before the housing tulipmania). If we spent 2300.00 a month to rent then we would not be able to put any money into our savings accounts, go out for nice dinners on weekends, etc. It’s just plain out-of-whack.

I still say that your California rent prices are way too inflated caused by the huge number of people who have opted to rent rather than buy at unaffordable prices.

I’m sorry, but if your median income in Irvine is 84K then that means that half the households there take home less than 5000.00 a month. If you spend 2300.00 a month to rent and you are at the median income then you are spending almost 50% of your paycheck on rent alone.

I know you pay a lot of money for fuel costs. I’m sure you probably need to get groceries every now and again. Probably have cable TV, electricity, internet service, a cell phone, etc…

You don’t think that this scenario would qualify as paycheck to paycheck?

I have to agree with ipoplaya on this one AZDavidPhx. You’re simply throwin’ a number at this property based on Phoenix economics. Google Irvine rents so that you can understand the price at which this unit would rent. Then make a reasonable educated guess as to its value at the bottom.

IR says that the lenders will be more conservative is that “Lenders don’t like to loan money when people do not pay them back. The more they get burned, the more conservative they become. As they get more conservative, fewer people qualify for loans and loan amounts decline.”

This is way to simplistic. The reason loans were given away to anyone with a heartbeat is that the lenders didn’t have to hold them, they were packaged and resold to investors as investment vehicles, the “SIVs”. Thats suddenly gone. People are so used to easy loans that they just haven’t yet grasped the magnitude of the credit cruch that suddenly hit us and the effect the sudden thinning out of the buyer pool will have on the market. About 1000 people in OC in the mortgage industry were laid off, BNC closed, this will have a huge effect on the availablity of loans.

Bottoms always overshoot. My 2 cents is that this condo should sell in the low 200’s but probably will dip below 200K for a year or two when the market bottoms before stablizing at it’s support level.

IR you didin’t live thru the last market crash in the early 90’s and you are too close right now to have any perspective.

Sure, someone will buy it before it drops below 200K soon, I agree. But then what happens is 10 other similar units come on the market and have to align their prices with the new low. But now there are only 3 buyers for every 10 sellers, interest rates rise, someone gets divorced, someone gets cancer, a unit forecloses, the bank needs to unload and bingo, now you are below 200K.

It takes three to five years to play out. You just can’t see it now, be patient.

AZDavidPhx doesn’t understand the local economy. He doesn’t know that the Irvine Co. owns most of the large rental complexes and that they control where rents go. He doesn’t understand that they’re willing to let 10-20% of their units remain vacant to support the rental price they’re seeking.

The median income is not the sole indicator of where the median home price should be.

This isn’t a house for someone making the median AZ. It’s in the Woodbury area of Irvine. Has a brand new school in the neighborhood. Has like 18 parks and a big common area recreational area with three pools, club-style amenities, etc.. The kiddies even get a water park play area of their own…

This house is for an educated young professional couple maybe just starting a family. They are going to make north of $100K per year. Your notion that houses should be worth 2 X income in a nice part of near coastal CA is absurd.

My friggin’ nanny makes more than $30K per year and she didn’t even graduate high school. Her husband cuts grass and trims trees for a living and he probably brings in $25K… Kids out of college make $40K to start. The girl that answers the phones in my office makes almost $40K. Get the picture? Our wages are not like those in AZ so our prices are not going to be like yours.

If you are going to blog about Irvine, you might want to spend some time understanding the economy of the place you are talking about…

Let’s see Alan, you think $700K for 4000sf in guard-gated Northpark. What’s your call for this 1800sf attached condo in Woodbury? $150K? $200K?

People talk about drinking the koolaid, you and AZ have sipped from the other bottle. The one that make you think the sky is falling and that somehow real estate prices are going to reverse back to levels seem 10-15 years ago in spite of all the price and wage inflation that has occurred since then…

You all sound more like the types that should be buying a big ranch in Montana and hording guns and food for the coming apocalypse.

“This house is for an educated young professional couple maybe just starting a family.”

There in comes a problem. What happens when the first baby comes? Do they do FMLA? Can they afford to do FMLA?

Is this place really 1800sf? I thought most of the 2/2s in Woodbury were 1300ish. Does it have a den? I’m thinking this is really the 3/2.5 at 1800 that is in woodbury but with the 3rd bedroom left as a den or office or something. The Redfin link is for the sold info.

Either way, price competition will keep this place well above $200K. Likely above $300K. At 6% interest rate, $450K price point, this is no longer a jumbo with 10% down. After taxes, it probably drops in around $2300/$2400 total out of pocket.

I don’t like it, but unless rents soften, you’ll see support for these places when a small down payment (10%) puts the loans back under jumbo.

You could not demonstrate a greater lack of understanding of Irvine rental rates. I’m not saying it won’t rent for $1,000 (I claim no ability to foresee the future with such clarity as so many others here).

I don’t believe there’s anything illegal about refusing to sell/rent something for less than your understanding of its value. Now, if you do so with ulterior motives (e.g. discrimination), that’s actionable.

In order to give you an idea on how bad things are out there, I work for one of the largest construction company in West coast. We do all commercial projects and currently have $600 plus million worth projects that have been pushed back due to lack of financing and uncertainity. Looking at workload and number of employees if half of these project do not materialize you know what will happen…massive layoffs. This job losess will acclerate as we get into 2008 and 2009. Each industry is tied to another and the domino effect will cause huge collapse of the system. Save while you can. You need a job in hte first place to keep paying mortgage for home and you need money to survive the collapse.

Thank you guys! I thought it was just me who was getting annoyed with AZ’s constant pricing comments.

And AZ, I am sure you are going to respond with how we all are drinking koolaid and idiots for thinking SoCal is special or something. That is far from the case. I can care less about what SoCal is and isn’t. As I have said before, it simply is home and if I want to live here, I have to face the reality of what it costs. I know we are in a bubble but I also know that if an 1800sq ft townhouse in a very very nice neighborhood falls to $200 a sq ft, it will be a steal. You think it should be worth less than $80 a sq ft and unfortunately, this area just won’t see that.

What I find encouraging is that this decline/ reo is in Woodbury.
Along with Portola Springs, Woodbury is one of TIC’s most recent projects. Builders are still trying to unload homes there.
Nice to see the downward momentum and market cracking.
About a year ago, many of my friends were dying to buy in Orchard Hills at whatever the cost, hoping to quickly net a few 100K. Since RE always goes up. Fast forward, today the market has shifted, Orchard Hills is on the shelf, and I haven’t heard a peep from them.

I went through the last market crash and bought a place similar in value to this at the bottom for 200K. (Smaller and in a less desirable city, but with a small yard.) Payments were quite easy even though me and my partner made less than 84K at the time, and payments were less than rent would have been. That’s 10 years of inflation ago too. Barring a depression, this place will never get to 200K – probably not below high 200’s, actually.

BTW, I’ve seen the places on Chantilly and they’re quite nice. Not shacks by any stretch. This place isn’t worth 525K but it’s not worth 200K either. Worth less doesn’t mean worthless, especially for a nice place in a nice neighborhood.

AZ – have you looked at what rents in Irvine were before the bubble? Lets say they were 20% less and they get back to that point. Well, I live in a 1100 sq ft 2b/2b in an Irvine company apt and it costs me $2000/month in rent. If my rent falls to $1600, the rent for an 1800 sq ft townhouse would still be at least $2000 a month. Using the 160 number, that puts it around $$320,000 and this particular area probably can charge a premium so even more.

Honestly, think from my point of view. My wife and I currently make in excess of $200K per year and we aren’t planning any kids for at least 3-5 years. Why would we not pay a bit more per month than what we pay for rent to own a great townhome?

A false part of your arguement is that rents will also fall when all this inventory of housing turns into rentals. I think it will play a part but most of the house owners don’t want to be landlords and there are plenty of people who don’t feel comfortable renting such properties. We skipped private rentals and went for a TIC complex for ease of mind.

Irvine – please scan that and post it in the forums! Would be awesome to look at.

“this condo should sell in the low 200’s but probably will dip below 200K for a year or two when the market bottoms before stablizing at it’s support level.”

That is just not possible. Right now a quick Craigslist search for 2 BR condos in Woodbury comes up with a range of rents from $1,900 – $2,700. $1,900 is for 1,000 sq feet. This listing is almost double that. Let’s pretend for a minute that the market rate for this unit is $2,100/month. You are essentially saying that at bottom rents in Irvine are going to drop 40%, because at a price of $200k you’re looking at a rental equivalent of roughly $1,200 a month. I think everyone on this blog would be lining up to purchase this place LONG before it ever gets even close to that price. The price equivalent of $1,700/month rent is $300k, which would still be an amazing drop in rents from todays levels.

This is not Garden Grove, Santa Ana or even Costa Mesa. It’s Woodbury in Irvine. I personally do not like Irvine and I’m not a fan of master planned communities, but unless we see the 2nd coming of the great depression in the US and Orange County you will not be able to rent a 2 bedroom in Irvine for $1,200/ month, how will prices drop that far?

I’ve been a long time lurker here and I intended to stay that way, but AZ (and others like it) is just annoying the hell out of me.

I am happy that this place is only worth $150k for you. But the comp sales in Irvine and prevailing rents say that you are smoking crack.

I would never pay more than $30k for a Mercedes 500SL and no more than $50k for a brand new Ferrari. Does that mean those cars will be on sale for that price in any near future?

NO!!!!

I can spout off some non sensical fantasy prices that I would like to pay for everything. But it provides absolutely ZERO to the normally intelligent conversations around here. So, please STOP!

The same goes for those people who mention how they can get the same house for 50% in Kansas or in the middle of a swamp in Florida.

That is all nice and all but this is a blog about houses in Irvine, not Kansas. What the equivalent houses go for in other parts of the country means very little when housing prices are dependent on local demand. As someone else has mentioned, you can get a palace in India (with full staff) for what you pay for housing in Kansas. Does that really mean anything? No.

You can argue my history and my sensibilities once I’ve posted this, suffice to say, I’m not the average “outsider”.

While AZDavid’s rash statements are, well, just that, rash statements, they do convey a sense that some of you Irvine locals/natives seem to miss in some part. And I don’t mean to imply he’s right and the Irvine folk are wrong, only that there is some objectivity to what he says even if his numbers are wrong.

Irvine is a nice place with lots of nice jobs and some nice places live. But I grew up in SoCal and while I haven’t been there for the last ten years Irvine is hardly the end-all be-all for SoCal. Irvine itself, in the opinion many people not attached to the location is a relatively boring, cookie-cutter place (that’s a strength and a weakness). The only advantage Irvine has over some of the surrounding communities is that much of Irvine hasn’t yet succumbed to many of the problems of the areas surrounding it. There’s really nothing intrinsically special about Irvine other than it’s central geographic location. For anyone willing to drive a bit more there are places with more intrinsic value (the coast for instance).

All I’m saying is this, be careful in thinking that communities never change and that everyone shares the same aesthetic values you do. This upheaval we’re seeing in real estate will, in my opinion, ripple out and affect a lot of other things that people can’t even imagine right now (barring some kind of magical bailout, which would have its own effects).

Do I see this Woodbury condo sell sub $200k? I don’t. But in three years who knows where the market, the economy and what Irvine’s place in all that will be.

People that brag about companies that can continue to pay employees 30-40% more than what they make in other parts of the country are somewhat foolish. This will last until a major recession. Most of the younger people on ths post have not lived through anything that approaches one.

One day may come where it’s either a pay freeze or cut or lose your job.

My company’s corporate office is in Dallas. The number one gripe/resentment from employees there is how much it ‘looks’ like we get paid out here in ‘Disneyland’.

Unless, of course, you secretly believe the comment that is most often dismissed on this blog with regards to the housing market: ‘everyone wants to live here.’ Can’t have it both ways.

“This blog is dedicated to exposing the truth about the Land of the Fake – Scottsdale, Arizona. Scottsdale is a mecca for phonies who cannot afford to play in a real affluent market like LA or NY and instead come here and pretend to be rich and hip. It’s also home to the most mickey-mouse city “government” I’ve ever seen.”

I agree with most posters here that this POS will never reach 200k but:

we have to take into consideration what will happen as this downturn deepens. People on this board sound very impressed with Irvine and Woodbury. when things get even more uglier, people will become very careful about where they put their money, esp if they have to come up with a down payment. what happens to incomes when financial services start contracting, other industries start being affected. I believe OC will go through a local recession somewhat worse than elsewhere due to dependance on realestate to a larger degree.

Woodbury came out during the bubble, so we dont really know how low it will go. when people who have owned for more than 7 years and want to get out quickly for whatever reason and start pricing in the 200-250 per sf. what will happen to this big apartment(I mean condo). would you rather buy an older but bigger house or a 2 bd condo in Woodbury. also some of the nieghboring communities are seeing price declines, are people willing to move out a few miles to surrounding cities (some which are decent as Lake forest, foothill ranch, tustin, Aliso, MV).

Just questions I’m wondering.

I know people who bought in Irvine only 5 years ago( actually one of the houses featured by IR) at 200 per sf. 5 years later incomes have not gone up that much. look for this place to drop to the mid 300ks. JMO 🙁

I visited these properties in 2005 and they are very nicely done. I would not call them award winning, but they are a step above the typical tacky stucco boxes in Irvine. Most of the units have an office that can be used as a third bedroom.

So what is it worth…..between $320,000 and $350,000

The fact that we are seeing these units on the market south of $300. is a major milestone and a sign of what is ahead.

1. Are there other nice urban areas of the US where the median family income is > Irvine’s $85,000?

2. Are there 2 br, 2 ba attached condo’s at those locations which match AZDavidPhx’s prediction?

If so, …. , then what makes Irvine so special? If it’s just that SoCal people are more likely to go into debt to buy stuff (house, car, etc), then the credit crunch should be the great leveler to get rid of that.

I appreciate extreme views on either side for the perspective they provide. However, they must be provided along with facts supporting their arguments. Simply saying something’s worth just $200K doesn’t add value to the conversation. Convince me how you’ve arrived at this conclusion. Otherwise, all I know is that you would never pay more than $200K for this property. Should I then go down the list of values I place on everything from homes, to cars, to education, etc.?

One of the things I keep hearing young couples without kids talk about is the school system. If they had kids in the next year, it will be about 7-10 years before the school system even matters. Most won’t be having kids for 3-5 years so how the heck can they predict how good the schools will be 10-13 years from now!

However, this is the case with any RE. Beverly Hills can become a dump if some gangs took over the area and made it miserable for tenants. Basically, anything can happen.

Hence, you have to make the best decisions you can with the data that you have. Have older Irvine neighborhoods maintained thier values? Sure, TR, Woodbridge, etc which indicates that there is a better chance of Irvine continuing to succeed.

That means the market is driven by LOCAL SUPPLY AND DEMAND. You cannot compare the median income and median housing price in Timbuktu to the median income and median housing price in Irvine. It just doesn’t work… Far too many other LOCAL variables are left out of that equation.

Prices will fall in Irvine and will bottom at the point when in general, it becomes more affordable to buy vs. rent. If somehow interest rates were cut in half today, you can bet we’d be at bottom tomorrow… It’s a question of LOCAL affordability and LOCAL economics.

The above being said, I can tell you that I prefer Irvine because of the 1) strong job market, 2) school district, 3) proximinity to decent colleges for my kids down the line, 4) the weather, and 5) being a relatively short drive away from the ocean, the mountains, wine country, etc.

I own and rent property in OC. I lived through the last crash in 90’s. I had friends, colleagues who decided to become house builders, build homes and go BK. I’ve seen paper net worth of 2M fall in half. It was very scarry times. There is nothing special about Irvine.

THIS TIME, THINGS LOOKS A LOT WORSE. The economists have no event to compare the current crisis to.

what have rents been doing over the last 20 years on OC. Have they fluxuated up and sometimes down like home prices or is the line pretty straight? Do rising home prices drive rents up as well? Will decending home prices put downward pressure on rents? Since the everyone seem to agree the absolute bottom of any bubble is where adjusted monthly housing expenses (for owners) meet rents.

I tend to think that way to. I used to live in an area with a higher median income than Irvine’s, but that was more financially conservative (ie. no one I knew leased a car, everyone paid their’s off in 5 years, then drove it a few more before selling it). Not surprisingly, the houses were also less expensive (ie. less crazy financing and speculating there too I assume).

There’s a reason Forbes.com rated LA the #5 in the world (and #1 in North America) lmost overprice real estate market. Since their survey is adjusted for local incomes, that must mean that people in LA are more likely than other North American’s to borrow the difference…

Los Angeles
P/E: 31.25
Last month we named Los Angeles as the least affordable housing market in America. Despite higher costs in San Francisco and Manhattan, L.A.’s overheated market was built up largely on speculators who subsequently exposed it to the credit problems now dogging the market. Top properties are still extremely expensive despite the price correction presently under way, which is expected to push down returns.

Actually, I can make the argument that you can compare median from other areas. You have to do so. When evaluating your life and where you choose to live, you need to compare the cost of living. The “Real Estate is Local” is the usual mantra that Realtors perscribe to.

If people are moving out of OC to cheaper areas, and they are, how can you say it doesn’t matter what other areas cost? It does matter. I know many people who have already moved or are contemplating relocating.

I agree that each RE market is different and unique but people don’t ignore the fact that prices are cheaper elsewhere. I for one would prefer to stay in the Irvine/South County area even though I pay a premium.

All I am saying is that your house prices have to come back down to reality. I personally would not pay more than 150K for this condo I mean apartment.

If you had 300,000$ in the bank right now, would you hand it over for this condo I mean apartment? I wouldn’t.

Your house prices are solely based upon how the mortgage hustlers can work the numbers and frame your monthly payment in a comfortable zone for you.

If everyone in Irvine wants to stretch themselves to the brink of financial disaster just to show the Joneses that they are ‘keeping up’ – no problem.

Knock your socks off.

Want the CA minimum wage to be 100.00 an hour? Ok.

The thing to consider is that nobody moves up to their next house until the first time buyer is priced back into the game. Without creative financing – either prices come way down or wages go way up. Either way your house has less value.

I think this apartment I mean condo is worth 150K even though our houshold earns more than your median Irvine income. We just aren’t willing to throw it all away like that. But then again, that’s why we will never move to CA. You who want to hang around and get ripped off – have at it. Your salaries are 10K-15K higher than here for no reason other than your inflated costs of living.

You guys acting like you are way better than AZ need a serious reality check. You have your own problems in CA. I love visiting CA, but I would never for an instant ever consider moving there; just the same as many of you may like visiting AZ but would never move here. That’s great; I totally respect that. I don’t go around calling you sissies for not being able to handle anything shy of 75 degrees. So quit with the elitism.

He mentioned there is a model for the US crash as a whole, and that model is the 30% loss we had in SoCal, which tells him that the US as a whole crash (which he is forcasting as 30%, which will put 40% of all homeowners under water!) will not be swift but take several years, just like the previous SoCal crash did.

He also makes an offhand comment after the 30% crash, that it will, of couse, be much worse in SoCal than in the rest of the US.

Irvine has two big things going for it:
1) Jobs. Lots of jobs. Vast light industrial areas unmatched elsewhere near the coast, backed by a good university.
2) Extreme master-planning. Irvine is possibly the most thoroughly masterplanned community in the LA basin.

#1 isn’t going away, and will hold Irvine values above other OC inland areas.
#2 is a fashion issue. As long as more people like the Irvine style of master planning than there are masterplanned places for them to live in, that too will prop up the prices. Now that *could* change. I don’t like current masterplanning; I much prefer mixed-use development. Other people like to be able to make meaningful changes to their houses – or at least change the exterior paint color! If there are enough of us then, yes, Irvine property will take a substantial hit (but not to 200K for this).

Thanks. Exactly. I have no idea what your prices will come down to. I can only tel you how ridiculous all of this looks to people watching this drama unfold from outside your state.

We believe heavily in living within your means. If one of us loses a job, the other one can pick up the slack until the other gets back to work. Our savings accounts get paid before our landlord.

I realize that a lot of you have different values and don’t see any problem with spending 40% or more of your income on housing. While it seems ridiculously stupid to me; I respect that you are doing what you feel you have to since ‘everyone else is doing it’ too.

All I know is that I am glad that I don’t live there. I would be sweating bullets!

You just blew up your own damn arguement Maestro – “I for one would prefer to stay in the Irvine/South County area even though I pay a premium”.

Or in other words, all other things being equal, you are willing to spend more for the same house here vs. in some other place. I would submit that you are even willing to spend a greater percentage of your income on housing to live here vs. in some other place. Median prices here will be higher relative to median incomes for those reasons alone…

Demand for real estate is localized, i.e. when I am looking to buy my next home, I will not extend my search into other markets. I can’t just go, oh well, house prices here are high so I’ll buy in AZ and commute via plane everyday. People have families, jobs, etc. which are rooted to a particular area and that keeps demand localized. Likewise, prices here are not influenced by someone living in WA and looking to buy a condo. That person influences their local WA market…

Why 2300? That seems really expenisive for a 2 bedroom. Granted you have 1800 square feet but you still have one less room than needed. When I pull up Irvine on craigslist, there are 154 2 and 3 bedrooms for rent UNDER 2300. That average price was around 1950. That seems more reasonable. Remember, you can’t borrow money to rent so at 84k median salary 2300. seems to be pushing the top for rents. Anyone trying to save for a house would more likely rent in a lower price unit and still take advantage of great schools and other amenities. I for one live in HB cheap 1600. for an 1800 sq ft 3/2 townhome 2 car garage. Good deal but they all rent for that around here. I’m looking to buy in Fountain Valley where the kids go to a great school and houses, yes houses, are well under 600k and some as low as 520k. Irvine seems way over priced to me. Friends live in Oak Creek and they paid 356k in 2000 4/2.5 2500 sq ft. on BLackbird. Just 7 short (long) years ago. That is another reason why even at 525k this townhome (apartment) is WAY over priced.

Off topic.
NAHB Nation Association of Home Builders just made an announcement that they believe house prices have another 10-15% to fall.

AZ, you are a moron, not because you live in AZ and OC is better, but because you wouldn’t buy this place for $300K right now.

$300K in the bank is earning $800 per month in interest after tax @ 5%. Let’s say you bought this place free and clear for three bills. This place would rent out for $2200-2400. After paying property taxes, association, insurance, etc. you’d be profiting on the rental at least $500-600 per month more than if you left that $300K sitting in the bank earning interest.

This place would be a slam dunk no-brainer investment property at $300K and the problem is you can’t even fathom that. You’re giving the good people of AZ a bad rep dude… They all can’t be this dim.

I have lived in OC for quite a few years, back in 94 I packed up the family and we moved to Idaho. Housing was very cheap, but everything else was expensive and you couldnt make any money.

People get jobs and stay there, you cant move up or make any extra money. I went from making six figures to 35K per year, opportunities were limited…..big time.

We moved back in 97 and it was the best thing we ever did. Yes it is expensive to live in Orange County, but…it’s worth it. You can make a lot of money and live in nice area’s and enjoy everything you can enjoy anywhere else in the country all within a couple hours driving distance.

It has its faults, but you cannot compare Orange County with Texas or Kansas.

We bought a house in 2000 for 422K and sold it in 2001 for 475K to start my business. It was recently listed for 925K and I believe it sold. We have been renting the same house since 2001 for 1800.00 per month and are hoping to buy back in the next year or two.

I guess in the bizarro non supply and demand world that AZ lives in, hordes more renters that have been foreclosed on don’t increase demand. I guess the builders there in AZ haven’t hunkered down and dramatically slowed construction, thereby restricting supply. Or maybe its just that increased demand and flat supply doesn’t translate into price INCREASES for rent in AZ world. Wow, AZ world seems to work in opposition to the REST OF THE PLANET.

Must be a very cool place to live. People can’t buy or own places any longer, and yet they don’t increase the demand for rental units when they can no longer own. I guess when they get foreclosed they just leave the state or get shot down in the street…

Boy, you said it — lenders are getting burned. Can you imagine? Look at this place. A nice revenue stream of, say, $4000 a month. And then not only does it stop for six months or more, but then they get hit by an additional $200,000, all in one month. It would take them 50 months to again break even after such a hit. As you can see, the business model is very vunerable.

Paradise valley is a pretty interesting place. When I think of Paradise Valley, I think of actually rich people. You won’t find average wage earners living there. It’s pretty exclusive : Phoenix Suns players, Diamondbacks players, mogul types. It also covers a very small area. The reason it is so popular is because it covers the base of Camelback Mountain. Lots of HUGE mansions along it.

I don’t think Irvine is in that same category. Although I am sure it is very nice.

I do take some offense to your painting Scottsdale with a broad brush like that.

Scottsdale has its problems as any place else would.

It actually has a very interesting history though. The park system and golfing system that they installed to route the Indian Bend river is what made the city famous. It really is a beautiful city. We have phoney people just like you do. We have people who live on credit above their means just as you do.

It annoys me that we get a lot of CA transplants with their phoney equity who think that they are superior just because they traded up a crapshack in CA for a ranch style home in AZ. However, I’m not bitter enough to start up my own blog and trash the entire city. That’s pretty extreme.

20% of Floridians are thinking of moving out of state, partly because we are no longer a low cost state, and that’s partly because of the local condition that we get hurricanes, and the insurance companies are charging ‘way more than they need to for windstorm insurance. Also because of very high property taxes, which will surely come down when properties are revalued down to a reasonable price.

I read people are thinking of moving out of California.

If much of this comes to pass, we won’t be worrying about “too much growth” issues.

I’ve avoided saying anything about your prices, because I don’t know anything about your prices, but I must say that to this Floridian, bubbly tho we are here, I do find even your recent reduced prices eye-popping.

One part of Irvine can’t necessarily be compared with another directly. Yes, you can rent a 2/2 in Irvine for below $2K. This is not the case in Woodbury. Search “Woodbury” on Craigs and see what you find. You will see places in the 800-1000sf range going for $1700-1900 per month.

HB and Fo Valley do not have great schools. My wife taught in HBCSD for six years and the district is terrible. The two middle schools, Sowers and Dwyer test out in the mid 800’s. Edison is a sub 800 API… Elementary schools are better, but not much. None of them hits a 900 API, which is common in IUSD elementary schools.

Please don’t try to say that living in HB, Fo Vally, the GG, or anywhere else is the same as living in Woodbury school-wise, which has a brand spankin’ new IUSD elementary school right smack in the middle of the development.

Actually, one could make the analogy that the group standing around discussing strategy, is like the central banks, and all the banks and non-banking institutions, municpal pools like Florida, etc., etc. all standing around discussing strategy. And if there is just one Leeroy Idiot that loses it and rushes in, their whole carefully orchestrated strategy will fall and chaos will ensue.

In your opinion, what is the household income that is required to buy this place by the Irvine Company? Will the medium household income of $86K suffice? If yes, then $86K/0.28=$307,143. Perhaps, that is where the market is heading in 2-3 years or so?

As long as income continues to increase rents will continue to increase.

The only way rents decline is if the job market gets destroyed. This happened in San Francisco after the tech boom. Rents exhibited a serious decline and there were plenty of vacancies.

In the OC there has been income and job loss in the RE business. 95+% of those people drank the kool-aid and bought houses. Those houses will be owned by the banks if they are not already.

If these people were renting, we would definitely see rent declines. The loss of their income spills over, but I think the OC economy is still relatively healthy. The process of moving renters to bank owned properties is a slow one; because of this I would still expect minor increases in rent in desirable areas ~ 3 % over the next few years…. just my opinion. In crappy areas there might be rent declines. In my opinion there is a high end market in the OC and a low end market. These 2 markets might move in opposite directions. There are plenty of people here who won’t be effected by this downturn.

Irvine schools test very well. On an indivdual basis my kids rank in the top 1% for the State of California. Born smart and I work with them. My friends kids in Irvine score below basic on the Star Tests. Oakcreek Elementary. On average most kids in Irvine perform quite well, I attribute that to the immigrant population. They are drawn there because of the schools and there starts a cycle of people moving there because their kids are bright and the schools test high. and so on and so forth. The exact opposite happens to lower performing schools. Parents of bright kids pull their children out and transfer them to a higher performing API school and only the average and lower end kids are left to be tested so over and over the cycle just does not end.

Real estate is local. The money to buy real estate though (ex. get a loan) is global. If no one ever got a loan to buy a house (ex. saved it all up, paid cash), then it’d be 100% local.

Also, per “Prices will fall in Irvine and will bottom at the point when in general, it becomes more affordable to buy vs. rent. If somehow interest rates were cut in half today, you can bet we’d be at bottom tomorrow… It’s a question of LOCAL affordability and LOCAL economics.”
What if interest rates went to 1% again, but in order to get a loan, you had to have 40% down and 25% DTI?

Hmm-m-m-m, I think I am about to get some heat. I agree with AZ, but with a condition: This condo will sell for about $200,000 in 2005 dollars. What that will look like in 2012 dollars, I have not a clue. Could be “$500,000” or could be “$900,000”. But if you took the amount of food you could buy with $200,000 in 2005, you will be able to take the same amount of food to buy this condo in 2012.
Ok, bring it on.

Can we once and for all get rid of AZ’s argument that if you remove the irrationality from the RE market, home prices in Phoenix and Southern California would be equal. Do you honestly believe that the exact same house on the exact same lot in the exact same neighborhood in the exact same economy/job market would cost exactly the same, regardless of whether that house was 5 miles to the beach in coastal Southern California or 365 miles to the beach in desert Phoenix? If you do, then you are nuts. If you don’t, then you need to admit that it isn’t blind ego that leads folks on this board — who are almost all bears — to acknowledge that there is some intrinsic value in Southern California. Add the economy, the population, the cost of living, etc., and the difference gets greater. Drop that refrain and join the conversation about how far the market will fall, even if it will never catch Arizona on the way down. Otherwise, please direct your comments to the “Arizona Housing should be the same price as Irvine Housing Blog.” It’s a little more to type, but you’ll be happier there.

So you’re saying I can make 800 a month while keeping my cash liquid, or I can sink it into a property and have to worry about tenants, tax hikes, and getting my money back. I don’t think you can call the guy a moron because he doesn’t want to pay 300k for a attached condo/apartment.

Personally, I’d snap this unit up for 300k in a heartbeat. To live in, not as an investment. Too much uncertainty right now.

Regarding a bottom, it is often quoted that prices in SoCal fell 30% from their 1989 peak, the last time housing crashed. People also mention how bad the general economy was back then, with many businesses closing down as a result of the collapse of the defense sector. Not to mention the riots and a good size earthquake, which never fail to convince a good number of people to leave the state. Nobody thinks that conditions are even close to the early 1990s.

However, the peak this time was much higher than 1989. I don’t think it is those other conditions that do affect the bottom, as much as the size of the peak. So I am certain that prices will fall much farther than 30% like in the 1990s. Prices are off 20% already. I am expecting a 50% drop from the peak.

Mostly agree that’s possible, except I wouldn’t use the price of food as the inflexible measure. If there’s a global hard landing, all the 3rd world places that can recently afford meat and going to lose that luxury, and then demain for grain for meat animals there will fall, and food prices will fall likewise.

Could use the measure of how many hours of labour it would buy I guess.

AZ, I’ve got cousins who live in AZ and love it, it’s home for them. Are the prices in the OC expensive? You bet. Are they overpriced? You bet. It’s a joke how expensive some homes are. I’ve traveled all over the world and all over this country. In my view southern California is the nicest place to live, we’ve got it all. Allot of people ran to AZ because they got squeezed out of the market. But for those of us who have money, we will spend the money to buy the best. And the OC is one of the best. CDM is beautiful. I’d love to move there, but Newport coast is also very nice. In fact I’m waiting for the market to drop some more before I pick up a spot in NPC. In 2006 the home I was looking at was 7 million. I’m waiting to save a couple of mill. AZ is not for me.

I think to be tax deductible as mortgage interest, the HELOC funds need to be used for the house. But my understanding is that lots of people fudge this. I’m not a tax accountant so my answer is worth exactly what you paid for it…$0.00!

One thing that AZDavidPhx may be missing is the fact that utility costs in Irvine are far less than what he would spend cooling and heating his house in AZ. I know because I grew up in the Phoenix area, rented apartments, owned a home, then left for a good job opportunity in Irvine. Not only did we rarely run the AC or heat, but our car insurance was a LOT less than back in Phoenix/Scottsdale.

My point here is that each market is unique – in ways that are not always that obvious. Having lived in both, I can say that there is definitely a premium placed on the incredible weather in the Irvine area. I literally wore shorts and sandals year round there and loved it.

The economies are totally different as well. A huge part of the Phoenix area economy is driven by real estate – not by mortgage brokers/fraudsters like in Irvine, but just the sheer volume of home building. When I was a kid growing up there was no such thing as Anthem. The GM proving grounds had nothing within miles. All that has changed over the past decade.

When I chose to relocate to Irvine I was shocked, petrified, nervous, etc… How the hell was I going to be able to afford to live there – even with a 25k increase in my salary!? I ended up buying a 30 year old fixer-upper (detached) that cost nearly 2.5 times what I sold home home for in Arizona (2000/2001). It was also 2/3 the size. In hindsight it was one of the best moves I ever made (thanks mr housing bubble – I made a killing!).

Bottom line is these are totally different markets and you really can’t compare them on the basis of price per square foot, rent factors, or median incomes. Irvine is a bizarre place. IrvineRenter has been honest about his feelings regarding the Southern California mentality (aka Social Contract). There are a lot of deluded people who choose to live in that area and frankly, I don’t miss some of them.

Are prices totally out of whack in Irvine? Hell yeah! Prices started getting out of whack in the Phoenix area back in 2005 as well thanks in part to California based speculators. Where will prices end up in these two bubble markets? Who really knows. The facts are that prices will continue to drop – quite possibly significantly. The credit crisis is real and it will play a major factor in low we go. Enjoy the ride – it’s gonna be wild!!!

Maestro, if the valuation was such that this hypo rental was yielding almsot double the return on a liquid investment, there would be no uncertainty with regarding to the valuation. It would at least stay @ $300K or appreciate.

We’re talking about market bottom here, when homes become good investments again, and that time there will be much less liquidity risk on a purchase. If it’s producing a better return than cash, it’s going to do well until that stops happening. Money has to flow into homes at that point. Cash always chases the best risk-adjusted returns…

Live in it and you’d be better off than renting. Rent it and you’d be better off than saving. Either way, at $300K this place would be a no brainer.

So the best Fo V elementary schools test out about the same as the worst in Irvine… Some people pay a premium for that.

Personally, I want my kids to be schooled with the best, brightest, and hardest working kids as possible. That’s one of the reasons why I don’t buy a place or rent a place in HB, FV, or GG for much cheaper.

Below you say ‘I think this apartment I mean condo is worth 150K even though our houshold earns more than your median Irvine income.’ If that’s not saying that the intrinsic value of Phoenix is the same as the intrinsic value of Irvine, what is? Otherwise, what does it matter what someone in Phoenix thinks of this property? Heck, if you put it in Phoenix, it probably IS worth 150K.

1. Are there other nice urban areas of the US where the median family income is > Irvine’s $85,000?
2. Are there 2 br, 2 ba attached condo’s at those locations which match AZDavidPhx’s prediction?

I will jump in here. I have only recently found this blog and I am really enjoying it. I am on the opposite coast, Northern Virginia/DC Metro. Our median household income does track Irvine’s. Housing is a bit less. Meaning until recently 2 bedroom condos 45 minutes outside of DC were $450k and up. It is interesting to read the comments from the middle states on the cost of real estate and the fact that they just can’t imagine it. We own a 2 bedroom 3.5 bath townhome that we bought in 1994 for around $190. I almost fainted at the price at the time and thought we were crazy. At the highest point in the bubble our home was valued at around$550k, neighboring SF were starting in the high $700’s. new ones in the low $800’s These are ordinary McMansions…nothing special. The easy money really destroyed responsible people’s chance at regular homes. I mean who can afford that even in this area. The price adjustments have been little. We are seeing about 10% lower pricing in asking prices. I don’t know about selling. Sellers are still hoping for little to no decline in price at sale. There are no buyers left in the area that can afford this typical SF price point and Condo’s have to be practically given away.

As an FYI rental units in my suburban neighborhood start around$1,200 for a one bedroom and go up from there.

I really have enjoyed the info on the units you list and wish there was something on my coast that did the same. Keep up the good work!

Hum, let’s see, six years ago I put down $50K on my $325K place here in Irvine (everyone said it was overvalued then too) that even after 20% off peak still has $300K left in equity. My out of pocket net for housing has been around $1500-1600 per month over that time, which is likely not much more than you spend. Am I guessing correctly? Even when we fall to 40-50% off peak here, my $50K + 1500 per month will still have produced $150-175K of equity.

So you are laughing because you are paying the same or a little less than us crazy people and have nothing to show for it in terms of positive net worth? I’d probably be crying if I was you…

I think long term support prices will be in line with prices seen in the late 90’s, not the bubble prices. It’s going to take 3 years to get to the bottom of the fall, 2008 will be very interesting but based on late 90’s prices, a 2 bdrm apartment in Irvine should end up in the low 200’s.

I think AZDavid has had too much heat and has had his brain take a turn for the worse. JK. 🙂
In reality, this place will never hit 300 or below, let alone 150. I don’t mind paying an extra 1 or 2K to live in Irvine. It’s an amazing place, with great schools, enviroment, weather, etc.

Not intended as a positive or negative comparison — just noting that one of Ron Paul’s more radical proposals is the return to the gold standard. I hesitated to make the post because Ron Paul has some … um … passionate supporters, and I didn’t want to turn this into a political discussion. Let’s leave it at that.

I just pulled the first eight off Greatschools.net for both districts. I think Fo V only has eight elementary schools though. HB City elementary API average is around 870. Looks like IUSDs elementary average API is 905 or so.

Paradise valley is a pretty interesting place. When I think of Paradise Valley, I think of actually rich people. You won’t find average wage earners living there. It’s pretty exclusive : Phoenix Suns players, Diamondbacks players, mogul types. It also covers a very small area. The reason it is so popular is because it covers the base of Camelback Mountain. Lots of HUGE mansions along it.

You proved my point (although I wasn’t comparing PV to Irvine – it’s an analogy about LOCATION).

Location matters.

Let me break it down in So Cal RE 101:

The closer you are to the coast and the jobs, the higher the cost of dirt. The dirt is more valuable than the structure. So don’t look at the structure and say “this pos” or “that stucco box” — the issue is this: where is the dirt, and how much of it do I get?

There are tons of ugly POS boxes (new and old) in the Turtle Rock and Turtle Ridge areas of Irvine. But the dirt borders Newport Beach. Woodbury dirt is north; it’s dense, but has a master-planned setting behind Lomas ridge that is close to jobs.

Irvine’s set up is genius: it is buffered on all sides from blight (either via transition cities like Tustin or mountainous borders along 241), is the job ‘hub’ south of LA, and is a sub 15 minute drive to the coast. So it’s more pricey than Lake Forest, Aliso Viejo, Tustin, and many other cities in the area that offer some of these amenties, but don’t offer all.

Where do 60k households reside in Paradise Valley or CDM? Exactly. They don’t.

There are plenty of areas inside OC that a 60k household can reside. In Irvine, they are called “apartments.”

I agree all of Irvine RE is way overpriced, but it belies the integrity of the site and the intelligence of the locals to Leeroy Jenkins into the forum and claim “150k”.

There’s phoney equity all over the place. Irvine is the Scottsdale of the coast, AZDavidPhx.

More from that fantastically cynical and oftentimes gutsplittingly funny blog, “Scottsdale Sucks”:

Scottsdale described to a tee
This was posted on HousingPanic today. It is directed at all of America but it especially describes housing-bubble Scottsdale to a tee. In 2005 Scottsdale was full of bling, Rolexes, big houses, Bentleys, etc. … Restaurants were always packed and you didn’t even try going out on a weekend without an advance reservation.

Now?

Everything is dead. The Housing ATM is shut off, and the restaurants are shuttering too. All those blingy cars are being repossessed by the banks. The steak dinners at Mastro’s are being replaced by 10-cent top ramen.

You may be right, I think the top was late 2005 so 2010 would be bottom, but I think the crash will be faster this time because so much of it was fuled by these “lending invovations” that are outright junk. Also, I think buyers will be smarter because of blogs like this one and hold out for lower prices, putting more pressure on sellers as inventory stagnates and banks have to sell. My biggest fear is bank failure, WashMu has been quoted to be at big risk. Can you imagine what will happen if a large bank like WashMu goes under?

ipoplaya said it perfectly. AZ, please, spare us your thought on this condo being in $150k as being reasonable.

And for folks who truly think Irvine is out of whack in terms of price, have you visited the Bay Area yet? Have you check out what it would cost to actually LIVE in either San Francisco or San Jose?

Before you guys bitch and moan about how Irvine’s RE price, even with $200k drop, is still overpriced, try checking out the TRULY overpriced locations before opening your mouth or start using your fingers on the keyboard.

Like I said – Paradise Valley, AZ is an exclusive area. It is not made up of people who get up and put their pants on one leg at a time. It makes Irvine look like peasants. No offense – I am sure that Irvine is a nice place to live for middle class citizenry.

I realize that you are trying to prove me wrong by counter-example, but I have always thought of your Irvine prices in terms of your median income even though I may be way off the mark due to having lived in AZ.

If you earn the median income of 84K then you are in the market for a house that costs 336K using the 4x income rule. For that, I would expect that you could find a nice house, backyard, pool, granite counter tops, stainless steel toilets, white picket fence and maybe 2800 square feet. Not a puny starter home apartment I mean condo.

You can make the sacred ground argument all day long. If all of your tech jobs up and moved to Scottsdale – all of a sudden Scottsdale would be sacred land and I would be thumbing my nose at you hoi polloi over in Irvine.

I’ll be going to Scottsdale at the end of January for Super Bowl XLII.
No ticket for the actual game just the going with friends to enjoy the pre-game festivities and seeing Velvet Revolver perform.
It will be my first visit to Scottsdale. My friends have told me that Scottsdale is a lot like Newport Beach. It’s hip, dynamic and has a strong social scene. Looking forward to the experience.

Location, location, location. Even a car price is different based on location.

A brand new 2007 BMW 3 series, 4 cylinder engine, is selling for about $50k in Taiwan. Would that same price sell in this country? (try finding a new one with 4 cyl in this country)

Folks, please, be reasonable in your argument. Yes, Irvine is still overpriced now. NO, this condo, at $150k, is NOT reasonably price but rather too cheap unless something drastic happens (or pandemonium) in SoCal, CA, or even the entire US.

Since Woodbury came out near the peak of the bubble, therefore much higher percentage of the owners there will have negative equity when the market corrects, say, 30%. Krugman suggests that on average 40% will have negative equity under 30% correction. Hence, perhaps more than 50% Woodbury owners will owe more than their houses’ value?

The beauty of Irvine and OC is non-reliance on a particular industry. I think the largest local employer is Disney, at least they used to be a couple of years back… Sure there is tech, but it does not dominate the area like it does in San Jo. Lots of jobs in education (UCI is a big employer) service, retail, healthcare, real estate (both commerical and residential) insurance, financial services, leisure, entertainment, manufacturing, etc.

I don’t believe there a reliance on any one or even two industries here. Since I’ve been in OC, I’ve worked in energy, hi-tech software, and now professional services. Never had more than a weekend between positions either… Actually, I think I worked for both employers for a bit every time I have changed jobs. My point is, there is less cashflow and income risk working in this fairly robust job market. I don’t need to keep six months of savings (although I have it) as the longest I’d probably ever be out of work is a month or two. In a pinch, I could take a position in North SD county or LA and deal with a commute if I had to as well.

It’s not sacred ground. It’s just that all things are relative. Did you even read what I said?

Folks as far away as Seattle are frustrated with your comments because they are completely ignorant.

Irvine has 14 zip codes, 2 area codes, and a mountian of VERY nice apartments. And the family income median is $103k. This creates a massive disparity between areas. There are some not-so-nice areas of Irvine (The Willows immediately comes to mind), and there are some areas bordering Newport Beach.

Point is, your comments don’t take any of these dynamics into consideration.

There are plenty of Phoenix housing blogs out there. Check ’em out – you will sound more coherent!

Which just proves my point. In your hyperbolic response to AZ’s hyperbole, you simply made yourself sound foolish. You cannot make the blanket statement that IE>NV, AZ without sounding as idiotic as someone making the blanket statement that the OC should be priced like Phoenix. The interesting thing to me is that your mentality is precisely the kind of kool-aid-guzzling realtor-speak that has fed into this mess from the beginning: the belief that something about Irvine is *special*. No. There is indeed not. And that is why this blog is so entertaining. A few months ago, the herd mentality was that no way prices would fall at all. Then it was “no way prices fall more than 10%!” And then a bit later it was “no way prices fall more than 30%!” Keep drawing the line in the sand, and I’ll keep watching the waves of foreclosures wash it away.

Your comment is not valid. This blog receive comments on a daily basis from many people stating what they think the value ‘should be’. I did not invent this; I just followed the crowd and threw my 2 cents into the arena.

It’s obvious that some numbers are more acceptable than others depending on the reader’s stake in the game.

Some numbers (that the reader wants to read) require an advanced mathematical proof whereas others using the proof by sacred land are valid by common knowledge and thus are acceptable without any other validity required.

I’m bearish on the pricing, let’s get that straight. My money is where my mouth is and I’m a proud mortgage-owner turned renter.

AZ is the place folks in CA who can’t afford the IE go. Median home values are simply lower, that’s all. My point is that location matters and all pricing is relative. So, yes, the statement that home values in OC > IE > AZ still stands (and is true for rent prices and incomes, etc).

No, I hear ya – I had those same thoughts leaving a brand new home for one 30 years old and 2/3 the size. Funny thing is that I left for California right during their energy crisis. My family back in AZ was freaking out because they thought I would be getting nailed by the energy costs. But in Irvine we ran our air conditioner only about 5 days a year. My electric bill dropped to literally 20% of what I was paying in Arizona. But the house… what a piece of crap! I don’t miss it at all! I just miss the weather.

AZDavidPhx, TeaLeaf, Alan ~ don’t sweat it – I am growing tired of reading this blog, as it seems that most posters have now adopted the mantle of ‘it’s different here’ with regards to Irvine’s future fortunes. I miss the good old days when mentions of 50 – 70% declines elicited cheers and agreement . . . talk about having recently picked up the jar of Kool Aid . . . it’s just sad. And BTW – This condo/apt *should* fetch no more than 175K – this from someone who’s lived on ‘the west side’.

I can’t say that it is very exciting. There are some of bars/night clubs if you are into that.

The golfing is supposedly very good here too (although I don’t play golf).

Yes, by all means, read the blog about Scottsdale sucking. There is a hint of truth in what he has to say. I’m just not so sure I would lambaste an entire city for things that can be found all across in many cities.

Okay, I read the article, but still unsure why “Scottsdale sucks”. Doesn’t seem much different than places here in the OC.
Either way, it’s not like I’m some older guy who’ll be staying at the Phoenician, playing golf and bidding on cars at the Barrett-Jackson auction.

Joseph: “The interesting thing to me is that your mentality is precisely the kind of kool-aid-guzzling realtor-speak that has fed into this mess from the beginning: the belief that something about Irvine is *special*.”

This part, although somewhat true, is probably not what tealeaf had in mind or else he would have stayed as a mortgage borrower instead of a renter. Perhaps his Inland Empire comparison is not *quite* correct but truth to the matter is Irvine pricing should not be compared with Scottsdale pricing. When AZ mentioned that this condo should sell for $150k, he’s saying that this would be the price he would pay for this condo….presumably in Irvine. HELLO! You can be a bear on current housing price but to make this kind of statement is just outright foolish without consideration of other factors….and the most important one: LOCATION!

I can be from Cleveland and said that this condo should only sell for $40k max. If you think AZ’s price target is sound, then you would definitely defend this Cleveland native’s *ultrasound* price prediction……

The “It’s different this time” argument does not have a very good track record due to its close resemblance to its cousin the “just because” argument.

In reality, it’s totally psychological. If you believe that everyone else believes that where you live is better than where they live then that is some pretty strong motivation for the “just because” argument. That’s what the sacred land argument is based upon.

From some of the posts I have seen, Irvine is a pretty ‘ordinary’ place. Nothing all that special other than a lot of nearby jobs. Oh and designed by God himself.

If the jobs go away (like in a recession) then will everyone still believe that Irvine is the hip place to be? Or will everyone start chasing a different color of tulip?

Here’s something that’s strange….on the same street (Chantilly), there’s two more homes that are REO. 49 Chantilly went back to the lender in early September and 75 Chantilly (one unit over from 81 Chantilly), went up for auction on December 5. Asking price for 75 Chantilly was roughly $499K. Does someone have access to verify if 75 Chantilly was sold and for how much or did it go back to the lender? It’s also strange that 49, 75, and 81 Chantilly are the exact same floor plans.

Let’s say $180k since you say it should fetch more more than $175k. You sir must be drinking spiked coke.

At $180k, I can rent this place out for $1700/mo and make more than just putting $180k in secure CDs/MM making less than 5% a year.

Check the current rental for 2 bed/2 bath condo versus this one that doesn’t have neighbors on top or below you (only side, I believe). Beats the hell out of renting 2 bed/2 bath apartment complexes from IAC.

I am assuming that since you used a designer vehicle like a Ferrari; I am assuming that you believe that today’s featured condo I mean apartment is one of the Ferrari’s of real-estate.

No, I used Ferrari because that is the kind of car that I would like to have but I cannot afford. It has NOTHING to do with what I think of this condo.

And I never, ever say this in an open forum like this, but you really need to chill out, step away from the keyboard and stop posting here for awhile.

You post here that anyone who makes a median income should be able to afford a nice size house with a nice yard.

Why should that be true??? Where does that sense of entitlement come from? Last time I checked the Constitution, it mentions nothing about a “nice” yard being part of your rights.

It may be true in many parts of this country, but it does not mean that that should be true for all parts of this country.

Median folks in Manhattan (NY) make at least twice what people in Irvine make, but they can barely afford a 800sqft studio, let alone a house with a yard. Hell, even if you made over a million dollars a year, you can’t afford a house with a yard in Manhattan.

Is the Manhattan case extreme? Of course. But it does demonstrate that real estate is local. The housing price and what you can get for the median price varies GREATLY based on geography and make up of the local population. Irvine may not be Manhattan, but “nice houses with nice yard” are rare enough that it is beyond the reach of median income folks. That is not only true in Irvine, it is true in Seattle as well as many popular coastal cities like SF, Boston, and Washington Dc.

So again, I beg you – please stop posting. Every time you post, the average IQ of this board drops measurably.

Hey, I live in North Scottsdale, I love it here. Just next month a partial list of things going on in this valley: Fiesta Bowl, PF Chang Rock ”n Roll Marathon, Barrett Jackson Auto Auction, FBR Open and the Superbowl!!! Scottsdale is a destination Resort City with beautiful weather, exotic scenery, fabulous shopping, world class golf, exquisite restaurants and nightlife and nice people everywhere. This place rocks and any article that says it sucks is crazy. Now, with that said I would like to sell my 4140 sq ft home in a gated community for $298 a foot. Please help me sell my house so I can buy another a little smaller (3024 sq ft for $330/ft). I am doing my part for the economy, and I invite all Californians, (as well as Canadians, families from Chicago, professional athletes, retirees and snowbirds) to continue to move here and make the Valley of the Sun their home

Not much of a difference in the average API scores between Fountain Valley and Irvine. I’m not sure why you keep mentioning GG or HB? There are many bright, hardworking, talented kids in Fountain Valley and for you to argue otherwise is rude. As far as paying a premium to live in Irvine because you want your child to go to a great school, that is you choice. I think it is narrow minded to think your child can only get a good education in Irvine. 2300.00 a month is way to expensive to rent a 2 bedroom anything.

Here is the point about median incomes that you and others keep seeming to miss. We all agree that generally, a median income should be able to afford to live in the median property type for the given area. The problem is that the median property type varies from area to area.

Below is a simple example. Imagine both communities have median incomes of $100K.

Community 1:
50 apt
100 sfr
10 mansions

Community 2:
200 apt
100 sfr
10 mansions

The median property type in community 1 is a SFR and hence, the $100K should be able to afford that. However, in community 2, the median property type is an apartment so the same person making a $100K will be able to afford an apartment.

If you drive around Irvine, you will notice the immense amount of mega apartment complexes and they aren’t all filled will college students or young people. Just like my wife and I, many of my neighbors are working professionals who make good money and the apartment is the right product for their income level.

I remember when I lived in Portland, the suburb areas like Hillsboro had their share of apt. complexes but nothing like the number of apt complexes in Irvine. It was expected that the median income could support an SFR over there.

In any case, I hope this puts your meaningless comments on every post to a rest.

I’m not even from AZ (I’m a content Angeleno), so I have no dog in this hunt. But I stand by my point that the ‘Irvine is *special*’ mentality is utter delusion, and that the IE > NV, AZ assertion is absolutely ludicrous. In fact, they’re not even remotely comparable, since they’re in completely separate markets and states, with different tax bases, local government, commerce, etc. IE is an oversized industrial park, hurriedly converted into cheap housing in order to absorb the priced-out Angelenos and OC’ers throughout the past decade. But once you leave California, it’s a new ballgame.

So, in short, my point is a simple one:

1) comparing AZ markets to the Irvine market is silly
2) comparing, in turn, the IE market to the NV and AZ markets is equally silly

That said, I at least give AZDavidPhx credit for challenging the herd mentality that is endemic to the OC. You need to let go of preconceived notions of some inherent worth of the Irvine market. That is, if you want to understand what is happening now, and not be shocked at what will happen in the coming 1-10 years. Word to the wise.

I think what irks you is people who think that Irvine is something more amazing than what it really is. The funny thing is that it is you who keeps saying the sacred land phrase and that we all think that we are better than the rest of the country. I don’t think that and I don’t get that feeling from the rest of the board either. I have lived in Portland, San Jose, Fort Collins, and outside of the country and absolutely love a lot more cities than Irvine.

But, fortunately or unfortuantely, my life and my community is here so I need to deal with that. Hence, I can’t care about pricing in other areas because I am stuck here and have to deal with the pricing that I am given.

If they would sell it to me for that much, I’d do it in a heartbeat. If I could turn the equity in my home into a low risk $500+/month return, like I said, it’d be a no brainer. As a matter of fact, if I could take my $175K down payment fund, pick this place for $300K with a $125K mortgage, I’d do that too.

Tell ya what, you get the bank to take $300K on this property and you have an investor. Actually, I’d call up six friends, get them all to put $10K in for a $60K down on a group investment. We’d share the profits and make $75 or so each month. That would be twice, i.e. 2X what that $10K would earn each of us earn in the bank. They’d all think it was a no brainer too…

Make it happen AZ. Just tell the bank this thing is going to be worth $150K soon. I’m sure they’ll believe you… Your arguements about median income and the tumbleweeds in AZ will sway them easily.

Joseph and others – by generally agreeing with tealeaf, it doesnt mean that I agree with every single statement. The whole OC>IE>AZ is meaningless. IE is the dumps. Actually, the funny thing is that I grew up feeling the same way about OC. That is, people who can’t afford LA lived in OC much like many people see the IE. I grew up in West LA and always thought of OC as the place that people who couldn’t afford LA live at.

However, living here now, I see that its more vibrant and has its own economy. But I am not a fool and don’t think its some magical place that is any better than the numerous places I have lived in my life.

The whole goal of this blog is to understand what the local economy can really support and at what price many of us should jump back into the market. If we can’t analyze and discuss this intelligently, this blog becomes a waste. Just as bad as AZ is with rediculous price calls, there are other folks who think the second you counter a point with anything about the specific area or location, you are automatically a bull and believe that OC/Irvine is something different.

I want to simply figure out what the pricing bottom will look at. If you disagree with some of the arguements, please explain why but simply dont say that one can afford xyz in abcland.

ROFL! “beautiful weather” in Scottsdale? Uh, I think not. Trust me – I grew up there. It truly is hotter than hell there in the summer which can last from May to September. The only place I know that has truly beautiful weather is Irvine – not that I’d want to pay those prices or live with some of the nuts there again.

That’s totally understandable. I realize that you have to do what you have to do.

The only problem is that this housing scheme can only go on for so long before the fundamentals kick back in.

I don’t know where the prices will settle.

To me this condo I mean apartment is not worth more than 150K, but that’s why I would never move there. I don’t see the intrinsic value in it the same thing that other people do. That’s fine. It’s one less person in the market to compete with.

Hey, we have sand in Newport Beach too! I think what differentiates us from Scottsdale is that we have, you know, water with our sand. And I’m not talking about that last bead of sweat you perspire before you collapse and die in the desert.

No, not elitist AZ —- just perplexed at why the need to come here and tell us the way things should be for us. It would seem that would be for us to worry about, not you. I’m not worried about your market, and why should I be — unless I really, really wanted to move to the desert.

Wait, maybe that is why you are here? You own every season of The OC on DVD, and watch it each night while secretly plotting the day you can come here and live the good life? So your strategy is to come to IHB and talk down the market to a level you can afford? Brilliant!!

“Sure, let’s agree to disagree on the rents going down as the crash ensues.”

If you read my post, I actually say that rents will go down. Was 2000 a fair year to compare the rent? 1996? I don’t know. Maybe rent will become $1000 for my current 2b/2b though it probably hasn’t seen that price since the early 90’s.

I would like you and others who make very low predictions for housing to describe the scenario that will lead to that. I personally believe that within the attached products, the nice properties will settle around $225/sq ft and middle of the road ones will settle around $200. This apt/condo/townhome is one of the nicer ones in a very nice area so at $225, it will be worth around $400K.

The reasons I see $400K being supported for that is because of the likely equivalent rent of $2500. Like I said earlier, we all here to understand that bottom.

I can explain my analysis in better detail for why I believe this property can still rent for $2500 in a few years when rents in general will come down but only if you are looking to have a conversation and not label me and everyone else as some wishful thinkers.

Hey, guys, go over to Calculated Risk and look at the posts on the muni bond mkt and the bond insurers that are about to blow up. This has been mentioned before, on various posts on various threads, but it is making me very very nervous. And way more important than whether someone from AZ should be speculating on what Irvine costs.

Rent costs haven’t gone up very much during the bubble, at least not for IAC units. The place I rented for $1650 in 2000/2001, a 2/2 in the Westpark area of Irvine, is going for $2050 right now. We’re talking about a net 24% over the past 6-7 years. That is almost exactly the rate of inflation measured in the OC/LA over that same period…

If there is deflation over the next few years, rents will go down. If there is high inflation, that’s not going to happen.

If a place like this condo were to go below $300K, it would mean we are in a depression.

Rollbacks that severe happened in the great depression.

In a “normal” market, judgeing by what I see and read of Irvine and its rents and salaries, $370K would be about right for this place.

It would cost more than $200K just to build it.

This blog is worthwhile reading for anyone in any housing market because it educates the reader on the fundamentals of housing and just how far the housing markets everywhere have departed from them.

And, yes, real estate is intensely local. Many people talk about how much cheaper real estate is in Ohio or Kansas, but it is actually just as overpriced relative to the local market in those places as it is in most top metros. As I once said, $140K for a gorgeous antique 3-bed in Shaker Heights, OH, sounds cheap until you consider that most people there are lucky to have a job.

The place in Shaker Heights has a long way to drop, since I saw it at $100K only a year before. But if this Irvine condo were to sink to anything like $200K, it means we have fallen off the cliff economically and that the whole country is for sale.

I don’t think I’ll take a pay increase for 2008… I don’t think I’ll be giving out any either.

My company does staffing and consulting and we’re already seeing signs of weakening demand for IT labor and projects. My bashing of AZDavid totally aside, Phoenix has actually been our most sluggish market of late. Things were pretty hot in 2005 and 2006, but seems to have been slacking off for quite some time.

Maybe it’ll pick up when the ’08 budgets get approved but we’ve seen a number of projects cut, delayed, etc. over the past few months. Feels like companies are already tightening their belts so we are as well… Time to hunker down and wait to see if a recession plays out.

The Feds cannot let MBIA or AMBAC fail (or even be donwgraded), because the only meaningful market for the Muni bonds they insure is US pension funds and other entities required to hold AAA paper. If the Munis are downgraded, they’d be nearly unsaleable and every pension fund in the US would be suddenly severely, severely underfunded–to the degree that it’s likely that many would stop paying (or at least, cut) current benefits. Most of the other bond insurers might go down, but MBIA/AMBAC have to be untouchable–not that they’ll necessarily have any future business.

It isn’t, at least not at the moment. A “duplex” townhouse rental of *1100* sq ft is ~2600 in Woodbury.

Somewhere on this blog/forum I read that the two Woodbury HOA’s can add up to upwards of 400/month as well. *shudder*

Everyone seems so tense with the holiday a few days away, so I apologize if this seems like an attack, dataguy, but I felt with all the screaming about having the actual numbers it would be worth pointing out what TIC charges to rent ‘stucco boxes’ in Woodbury. 🙂

Ugh, more talk about how great Woodbury is. Ipo, you sound like tonye is about TR. 😉

More of what you tout about Woodbury sounds like Realtor (TM) talk more than anything. And your assumptions that those out of college are automatically making 40k/year are just ridiculous. Maybe those with technical degrees are, but rare for others.

Your argument seems to imply that it’s quite plausible for house prices to overshoot the rent-equivalent price by 2X during bubble – and yet it’s “not possible” that house prices can undershoot the rent-equivalent prices by the same amount.

It doesn’t matter that a house is a bargain compared to whatever metric and you could juggle numbers all day to prove that a certain house is an impossibly hot deal.

What matters is people will not buy the house if they perceive the value will continue to decrease in the following year(s) thereby wiping out their money down.

I don’t think we need to get shotguns and go live in a farm in Montana – but you need to stay observant of what is unfolding and saying things like “it’s just not possible” doesn’t belie that attitude. ANYTHING is possible in financial markets – but some things are unlikely.

Woodbury is a nice master-planned development. I don’t live there and passed on the chance to drop $1.2M on a 2900sf Lennar place a year or two ago that is probably worth $1M today. It’s not my cup of tea, but rents don’t lie. People must like it or they wouldn’t pay more than they do in Westpark to rent the same square footage. The market and pricing tells the story, I don’t have to… Personally I wouldn’t buy there because the lot sizes are too small for me, but that doesn’t mean I ignore what the market says about the place.

You might not like Woodbury so you likely wouldn’t pay a premium to live there, but obviously you are in the minority as rents and home prices there are higher than in many other areas of Irvine. Again, prices should tell you what is more desirable to the overall market. If you don’t understand supply, demand, and pricing, I suggest a basic econ course would be in order. I had 15-20 such glasses during college, since I graduated with an economics degree, so I have a bit of a headstart on you there…

Kids out of college with technical degrees are making more than $40K in most cases right now. Business grads are making $35-40K easy. My business is employment. That is what my company does. I have to pay these kids out of college and see what the competition is offering them. I have a pretty decent handle on professional wage scales in OC as that is what I deal with every single day…

“What matters is people will not buy the house if they perceive the value will continue to decrease in the following year(s) thereby wiping out their money down.”

That is wrong in my opinion. I am going to buy a house, likely within the next twelve months, and fully expect the value to decline over the following years. If I am buying on a 30-year time horizon, why should I care about what the value will be in 2, 4, even 10 years. I need a bigger house, want a bigger house, can afford a bigger house, and think that mortgage rates are relatively low today as compared to what they may be in the future. As I can handle the payment comfortably on a 30-year fixed mortgage, why not buy today? The house will fall and eventually rise. I don’t really care about how much equity it has as it will be paid off in 30 years no matter what it is selling for at the time. Since I already own, I am losing money anyway, so that makes the decision even eaiser…

You say “stay observant” and suggest words like “it’s just not possible” are too strong and yet you spout a “people will not do this because”. Can you contradict your own point any more? I would agree that many or even most people won’t buy if they perceive a significantly downturn on the horizon, but there are always buyers on the way down for one reason or another. If there were NO buyers as you suggested, this bubble would burst and correct very quickly as opposed to years of slow leaking to deflate the bubble pricing.

AZDavidPhx – Obviously you have struck a nerve in some people based on the flack you are catching. Try telling a homeowner that his house is going to drop 30% or more in market value in the near future, and you will get a similar reaction. As a resident of Irvine (former owner, now renter), I can say that there is nothing magical about this city, and like any other it has good and bad attributes. A bad one being the cost of living. And, Irvine is as vulnerable to the current recession as any other area. Maybe even more so because of the many RE industry and related jobs (New Century, Ameriquest). Irvine is a very boring city and has no culture whatsoever. There really isn’t anything special about it.